Class B shares tend to have higher annual distribution expenses than A shares. After a specified number of years after the CDSC has ended, most Class B shares convert to Class A shares (without paying an additional up-front charge) with lower annual expenses.
• Class C shares typically do not have a front-end sales charge, but carry a back-end charge – usually 1% if the shares are redeemed within the first year of purchase. Class C shares tend to have higher annual distribution expenses than Class A and Class B shares. Generally, your Financial Consultant is compensated 1% on an annual basis when you buy Class C shares. This amount is deducted from the net asset value of the mutual fund. Also, Class C shares do not generally convert to Class A shares at any time after the surrender period.
Which share class is right for you?
That depends on how long you intend to hold your mutual fund shares. Over long periods, C shares result in lower returns because they have higher fees than A shares, even though you pay no up-front commission with C shares. In the short term, A and B shares will return less than C shares. FINRA (the Financial Industry regulatory authority) offers a free tool for analyzing the effect of breakpoints and loads at www.finra.org/fundanalyzer
Do fee-based accounts pay sales charges on mutual funds?
No. Fee-based accounts are assessed an annual fee, paid quarterly in advance, based on a percentage of the account’s value. Our fee-based accounts purchase institutional class, no-load, or load-waived mutual funds. For these funds, the mutual fund company assesses no front-end or back-end sales charges. But the fund company will still charge annual operating expenses and may make additional charges, such as 12b-1 fees.
How are Hilliard Lyons and its Financial Consultants compensated?
Hilliard Lyons offers many mutual funds to clients. It is important that our Financial Consultants evaluate these products as they help clients choose the investments that meet their needs. Because there are thousands of mutual funds available for sale, we identify a select group of approved providers that offer a broad spectrum of investments. If you purchase a mutual fund, Hilliard Lyons will receive compensation in the form of sales charges.
Revenue-sharing payments: In addition to the compensation received for the sale of mutual funds, Hilliard Lyons may get payments from distributors, investment advisors, or other entities affiliated with
mutual funds (“sponsors”) to support training, backoffice operations, educational presentations, and sales support activities provided to Financial Consultants. These payments are generally referred to as “revenue sharing” payments.
As of December 31, 2015, these mutual fund sponsors made revenue sharing payments of up to 20 basis points (0.20%) on gross sales to Hilliard Lyons: American Funds, Columbia Funds, Federated Funds, Franklin Templeton, Hartford Funds, and John Hancock. Revenue sharing payments may be in a lump sum or based on gross sales, assets under management, or other factors.
For example, when revenue sharing is based on gross sales, the mutual fund sponsor pays a percentage of an investor’s total purchase of a mutual fund through a Financial Consultant. A 20-basis-point revenue-sharing payment would be $2 per $1,000 invested.
We do not approve mutual fund sponsors as providers based on whether they make revenue-sharing payments to us. Our Financial Consultants do not directly receive additional compensation in connection with the revenue sharing payments to Hilliard Lyons. Nevertheless, mutual fund sponsors that make revenue-sharing payments are more likely to provide more training and education services. So Financial Consultants may prefer those sponsor’s mutual funds over others. Also, certain revenue sharing payments may be applied toward award trips designed to recognize our top Financial Consultants.
Representatives of mutual fund sponsors may attend these trips. Financial Consultants who qualify for these trips are not required to sell any certain provider’s product.
Sponsorship payments: In addition to revenue sharing, Hilliard Lyons may receive payments from distributors, investment advisors, or other entities affiliated with mutual funds to sponsor award trips for Financial Consultants and company-wide conferences or events. These payments are generally referred to as “sponsorship payments.” Other service providers not listed here may pay directly for educational seminars for Financial Consultants or clients.
During 2015, these mutual fund sponsors made sponsorship payments to Hilliard Lyons of up to $75,000: American Funds, Deutsche Asset Management, First Trust, Franklin Templeton, Highland Funds, Invesco Funds, John Hancock Investments, MFS Funds, LoCorr Funds, Pimco Funds, Royce Funds, and Russell Investments.
Networking services payments: Hilliard Lyons receives compensation from mutual funds for providing statement preparation and mailing, tax reporting, and other shareholder services. These payments are typically based upon the number of positions or the aggregated value of the client positions and the level of services provided.
In some instances, Hilliard Lyons may charge fund families a platform fee in connection with signing a distribution agreement with the fund.
You should feel free to ask your Financial Consultant how he or she will be compensated for any mutual fund transaction.
What does all of this mean to you?
To choose an appropriate mutual fund, you need to understand not only what a mutual fund is but also the fund’s investment time horizon, investment objective, performance history, risk factors, and associated expenses and fees. All of these factors are set out in the mutual fund’s prospectus. To fully evaluate all fund options, you should review your investment objectives and goals with your Financial Consultant and review the prospectus to determine whether a particular mutual fund is an appropriate investment.